Silicon Valley to benefit from U.S.-South Korea trade pact

With the long-delayed free-trade agreement with South Korea inching closer to congressional approval, the tech industry is hailing it as a blueprint for future treaties because it includes provisions important to Silicon Valley, from better intellectual property protection to greater access to markets.

"This can serve as a model on how to do a trade agreement in the 21st century," said Betsy Mullins, senior vice president of policy and political affairs for TechNet, a bipartisan lobbying group. "It takes into account e-commerce and regulatory issues. It makes sure everything is spelled out. It takes into account how technology is changing."

The Korean market has long been important to Silicon Valley. In 2008, the country represented about 9 percent -- or $2.3 billion -- of foreign trade for companies in San Jose, Sunnyvale and Santa Clara, just behind China and Japan, according to the U.S. Department of Commerce.

In addition to greatly reducing tariffs on some products and eliminating them on others, the U.S.-Korea agreement would guarantee American companies greater access to government technology procurement decision-makers. It would increase government transparency and allow American companies an opportunity to weigh in on proposed regulatory changes.

Advertisement

For the first time, companies like Sunnyvale-based Accuray, a medical device maker, would get access to government officials who can make or break a medical technology's success in South Korea by deciding what kinds of treatments are reimbursed. Now, Accuray's CyberKnife, a multimillion-dollar device that aims precise beams of radiation on tumors in the brain, spine, lung, prostate, liver and pancreas, can be reimbursed for only a few types of treatment under South Korea's national insurance, which limits its market in Korea, company CEO Euan Thomson said. Under the free-trade agreement, his company would be free to make its case for reimbursements for expanded treatments to medical officials.

"This gives medical companies direct access to the officials who make coverage decisions," Thomson said. The treaty would also eliminate an 8 percent tariff his company faces.

Beyond tech, the agreement would erase the 40 percent tariff on beef in 15 years, the 8 percent tariff on autos in 5 years and immediately lower the cost of California wine by 15 percent. And just as important, advocates say, the trade deal is a sign to Asia that the United States will continue to be economically engaged in the region, even as China emerges as a superpower.

"The global economic landscape is shifting to Asia, so it's important the United States signal its commitment to Asia," said Dean Fealk, a partner with DLA Piper based in San Francisco who advises multinationals on legal and strategic issues overseas. South Korea, he added, "is a flash point in the region, with North Korea and the rising Chinese military presence. So this is a very critical statement in terms of our commitment to the region, both economically and on a security basis."

The South Korea deal, along with pending treaties with Columbia and Panama, have broad support in Congress. But the Korean trade agreement is mired in a dispute between the Obama administration and congressional Republicans. The administration has tied renewal of the Trade Adjustment Assistance program, which provides funds to U.S. workers who lose jobs because of trade, to the Korea deal. But Senate Republicans have said they will oppose the agreement if the assistance financing isn't stripped from the Korean trade agreement.

Combined, the trade agreements could boost the nation's exports by about $12 billion a year, though most of the benefits will be from the treaty with Korea, revised by the Obama administration after being first negotiated by President George W. Bush in 2007. The agreement, which also has to pass the South Korean National Assembly, is being debated in Congress after a new trade treaty between the European Union and South Korea went into effect July 1 -- placing American competitors at a disadvantage in that country.

"Quick action by the United States will send a strong message to the international community that the United States is serious about re-engaging with one of the fastest growing regions in the world, which is Asia," said Jong-hyun Choi, economic minister at the Embassy of South Korea in Washington, D.C. He visited the valley recently to huddle with tech executives and to drum up support for the trade agreement. Not passing it, he added, will mean European competitors will "enjoy preferential treatment in marketing their products and services. They won't have to pay taxes to market their goods."

For South Korea, the deal would expand business opportunities in the United States and provides provisions that help them navigate FDA approval for medical devices.

"Locking in access to the United States is a key goal for them," said Troy Stangarone of the Korea Economic Institute, a policy organization in Washington. "Korea doesn't want to become overly dependent of China as a trade partner."

The Korean government also wants to spur reform in its services industry, which it views as inefficient, by introducing foreign competition, which the trade agreement will do, he said.

California's wine industry, which has seen its position in the Korean market drop from second to fourth in recent years, believes the trade agreement will "level the playing field," said Linsey Gallagher, director of international marketing at the Wine Institute in San Francisco. "That is significant. Our colleagues in other wine-producing parts of the world, like Chile, already have a free-trade agreement with Korea, so it already has an advantage over us coming out of the gate."

Though organized labor is traditionally opposed to free-trade agreements as threats to American jobs, the treaty with South Korea garnered support from the United Automobile Workers and the United Food and Commercial Workers unions because they believe it will boost exports of autos and meat.

While the agreement has generated some controversy in South Korea, its chance of being approved there will be greatly enhanced if Congress moves quickly and enacts it, Fealk said.

"If we really want to get this thing done, its incumbent upon us on this side of the Pacific to make the first move," he said.